Lg Cap Portfolio Update

Markets continued to move higher this week thanks to an afternoon surge on Friday. While the SP500 was mostly flat on the week (prior to Friday afternoon), many individual stocks traded very well, several of which we currently own in our portfolio. 

Focusing on trend and relative strength will keep you positioned correctly in the market. Our job as money managers and traders is to be Long the market when its is going up and protect capital when it is going down. The best way I have figured out how to accomplish this is by seeking out the strongest and smoothest trending stocks. They tend to hold up best during corrections and also lead on rallies higher, outperforming the market averages. 

Looking over our Large Cap Portfolio I would say we are succeeding at that task so far in 2015.

AEROSPACE/DEFENSE

One area of the market that has been breaking out all over the place is the Aerospace and Defense sector. We currently hold Boeing (BA) and as of the close Friday have entered a new position in Lockheed Martin (LMT). United Technologies (UTX) is currently on my watchlist going forward also.

It doesn't matter why this group is leading. I try not to get caught up in the "why" in the market, I focus on the "what". Aerospace and Defence as a group is leading this market, that's enough for me.

+Entering Lockheed Martin (LMT)

Everything I said above applies to LMT. This is a leading stock, in a leading sector, and in a strong uptrend. There is everything to like about this entry: multi-week consolidation, breakout to all-time highs, and a relatively tight stop offering a favorable risk/reward.

I only want to own this stock above the recent consolidation lows and rising 20 WMA. If LMT were to correct below this area it would suggest more digestion is needed. For our initial placement we will have our stops set at $188.35 on a weekly closing basis.

BA

Despite the market's tepid trading most of the week, shares of Boeing finished up $10. BA just continues to march higher to the disbelief of many left-out bulls watching from the sidelines. As the saying goes, "the bigger the base, the higher the move in space". The trend is definitely higher here and the recent strength suggests higher prices in the future. 

TECHNOLOGY

Pockets of the Technology sector have been working for some time. But it has been difficult to get a strong risk/reward in the better looking names. Fortunately we recently received favorable entries into AAPL and CSCO. It took awhile but the setups finally gave us the green light last week.

AAPL

A newer position for our portfolio, some will say that an uptrend similar to AAPL's has gone too far and that we've missed the move. But you can never know exactly where you are in trend. All you can do is take your signal and manage risk, that's what we've done here. Stops are at $106.

CSCO

1-yr Daily view

I wanted to look at the Daily bars here to show the action after CSCO's big gap higher. This is called trading "high and tight" and is a sign of strength.

We need to be aware of what happened in a similar situation back in May of last year. The trading was very much like our current situation. The stock traded strongly for about 1 quarter and then consolidated those gains. It then broke down in October only to surge back higher shortly after.

We may need to leave a wide stop due to a tendency to shake out traders. I said it before, CSCO is setup for a long-term run and we might need to stick with the initial breakout level as our stop longer than usual.

CONSUMER DISCRETIONARY

SBUX

Starbucks looks quite similar to BA currently. The common theme here is both digested significant gains during 2014 and have since broken above their prior highs. When a stock trades sideways near its all-time highs and then breaks through, it can create a tremendous surge. While its certainly possible that this pulls back a bit, the trend is clearly higher long-term.

Another interesting development around this space is the situation with Coffee prices. I've commented recently on social media how Coffee futures have confirmed a Double Top pattern and appear headed much lower. Lower coffee prices are great of SBUX's profits and profits help fuel stock gains.

SBUX was one of my top picks coming into 2015 and so far it has been an excellent place to be.

DIS

Keeping with the consumer theme, Disney continues to be a big winner in 2015. Again we see a multi-month sideways consolidation of a large uptrend that then resolves to the upside and is leaving many traders in the dust. Nothing to do but stick with the trend.

TWX

Time Warner hasn't exactly been the cleanest of trends recently and is currently our only position in negative territory, showing an open loss of about -2.5%. While TWX traded directly into our stop level, it also held that level perfectly and has rallied 10% in the last 3 weeks. This tells me our stop is positioned correctly and a break of that level would surely force us to look elsewhere.

While the trading has been volatile recently, I believe the stock has shaken out many of the overeager traders and sets up a good opportunity to breakout and continue higher over the long-term.

BASIC MATERIALS

I would be willing to bet that coming into 2015 a very small percentage of money managers and analysts would have picked the Materials sector to be an early market leader. I certainly wasn't thinking this way, yet here it is trading at new highs and leading the market. Not all Material names are participating, but the ones that are definitely look strong for continued upside.

PPG

With PPG holding near its highs and the trailing 20 WMA catching up to the recent swing low, we can now move up our stops to the $219.80 level. A break below that would set a new 50-day low and break the rising 20 WMA, invalidating the new breakout.

IP

There is not much to say here that I didn't say in last week's post. IP continues to be strong and I beleive it continues to move much higher.

HEALTH CARE

UNH

UNH set a new weekly closing high this week and allows us to trail our stops to $98.75. It has been a remarkable run for UNH and while a multi-month consolidation would be welcome, it continues to see immediate buy interest on any weakness whatsoever. That should tell you everything you need to know. Own strength.

BMY

BMY is still working off its recent surge and appears quite healthy above the $57.50 support level. Often the best course of action is doing nothing at all.

INDUSTRIAL

With our entry into LMT this week it does put us at 4 holdings in the broad Industrial sector. That is normally a little high for me in terms of sector concentration, but the cross section of what we hold is more diversified than the general category would suggest. We hold the two Aerospace/Defense names above as well as UNP (railroad/transportation) and HON (diversified machinery).

HON

Honeywell has had one of the quietest moves to new highs that I have seen in some time; there is hardly anyone mentioning the strength here. The stock has been routinely making new all-time closing highs since mid November while the market has been a churning mess.

I also love the support/resistance polarity in play. The $96 level was strong resistance for all of 2014, and has now become substantial support on any retest that has come into the area. Our stop at $95.88 seems solid to me.

UNP

UNP set another weekly closing high this week.  

BONDS/UTILITIES

While many continue to insist that rates will rise, I still feel there is not enough evidence to support that yet. Certainly rate sensitive names have experienced a pullback recently, but their strong uptrends are still intact for my longer timeframe.

TLT

I shared this chart on Twitter on Friday and still believe this is a counter-trend move in nature. The sharpest corrections tend occur after long-term trends reach extreme levels. These moves usually scare the newly bullish and embolden the persistent bears. But if EVERYONE is still expecting higher rates in the near future, TLT has done a great job of getting many leaning in the same direction.

There is a very solid level of interest between $126-$124. To me it appears to simply be a throwback move after setting new highs just 3-weeks ago. A break below this support range would be enough to convince me that something larger is in play here. We have held our positions in TLT since February of 2014 and I see no reason to get antsy here with such a notable level just below.

PCG

PCG isn't even close to retesting its monster breakout level at 48.50. While many have also called the end to the Utility run, PCG hasn't even given back 1/3 of its recent rally. Its so typical of short-term thinking to see a sharp shake-out move and say the uptrend is over. I fortunately don't suffer from that sort of thinking. After setting record highs just last month there is no reason to jump the gun here. Until this breakout fails I have no interest in selling my shares.

In fact I would rather be a buyer should the stock build a support base and resume higher in the near future. As long as its above the 48.50 breakout I will be looking to add to positions rather than dump my modest gains on the first sign of profit taking.


Notice that we do not have any Financial, Staples, or Energy exposure at this time. It doesn't take more than a glance as these groups to know why we don't have holdings here. While Financials and Staples don't look horrible, there just simply aren't any stocks currently leading the market higher. Until this changes we will continue to look elsewhere for potential opportunities.

Energy still remains the weakest sector and despite its recent bounce, the group is still nowhere near where it needs to be for consideration as a "market leader". We will continue to avoid this space. 

For current position updates and watchlist ideas please follow me on Twitter and Stocktwits @ZenTrends.